STOCKHOLM, Feb 5 Swedish lenders Handelsbanken
and SEB increased dividends for 2013,
loosening the purse strings after building some of the strongest
capital buffers among European banks and posting
forecast-beating quarterly earnings.

Nordic banks were some of the earliest to raise capital
after the financial crisis and have continued to strengthen
their balance sheets while investors have been holding out for
buybacks and higher dividends.

Handelsbanken shareholders were rewarded on Wednesday with
an extra dividend while SEB announced a 45 percent increase to
its annual payout, boosting the shares of the banks by 4 percent
and 2.5 percent respectively.

"It sends an interesting message out to the market," UBS
analyst Nick Davey said, referring to the Handelsbanken
dividend. "... It isn't just regulatory tightening for ever."

Any rise in the proportion of earnings Swedish banks pay
their shareholders - already averaging a chunky 66 percent - is
in stark contrast to other parts of Europe. Britain's Lloyds
scrapped its 2013 dividend while Switzerland's UBS
is paying the equivalent to a 30 percent ratio.

But for all their capital strength, the outlook for Swedish
lenders remains tainted by continuing weakness in Europe, where
many EU banks are busy retaining earnings and even raising fresh
capital ahead of stress tests designed to draw a line under the
financial crisis.

Nordic banks have been helped by strong public finances in
the region, but high household debt and weak housing markets are
still a concern.

Though borrowing has yet to pick up, SEB Chief Executive
Annika Falkengren believes there are reasons for optimism as
consumers and companies start to spend again.

"Even though Europe is extremely challenging, there are some
hints of life that we're very slowly coming out of the crisis,"
she told Reuters, adding that she is "on the verge of being
optimistic".

Nordea and Swedbank were a little more
cautious last week when they proposed full-year dividends below
market forecasts, arguing that they had to be careful in the
face of regulatory uncertainty and weak loan growth.

ROBUST BUFFERS

Swedish authorities, worried by the large size of the
banking sector relative to its economy, have warned that banks
will face tougher capital requirements for years to come,
including tougher risk weightings for mortgages.

Though some regulatory uncertainty remains, Handelsbanken
CEO Par Boman said he believes that his bank's buffers are
robust, with a core Tier 1 capital ratio of nearly 19 percent.

Some EU banks, meanwhile, are worried about being able to
hit the European Banking Authority's target of 8 percent at the
start of this year's stress tests.

Lenders including Deutsche Bank and Italy's Monte
dei Paschi have moved early to bolster their balance
sheets but there may be more to come. The Bank of Italy, for
instance, has said some smaller Italian lenders may need an
extra 1.2 billion euros in total.

There are no such fears at Handelsbanken and SEB, however.
Asked if share buybacks are an option this year, Handelbanken
CEO Boman said: "It's an alternative definitely ... But most of
the investors prefer a cash dividend."

Handelsbanken said it would pay an extra dividend of 5
Swedish crowns per share on top of an ordinary dividend of 11.5
crowns for 2013, up from 10.8 crowns last year. That equates to
a payout ratio of 73 percent.

SEB said it would pay out 4 crowns per share - a payout
ratio of 59 percent.

Handelsbanken, which opened 28 new branches in Britain in
2013, reported fourth-quarter group operating profit up 13
percent to 4.46 billion crowns ($683 million), beating a
consensus forecast of 4.4 billion crowns. In Britain alone,
profit jumped by 53 percent.

SEB's operating profit in the quarter jumped nearly 80
percent to 5.01 billion crowns, beating the average forecast of
4.68 billion crowns in a Reuters poll.
($1 = 6.5313 Swedish crowns)
(Editing by David Holmes and David Goodman)

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